USD/JPY trims a part of intraday gains, up little around 113.75-80 region

• The risk-on impulse undermined the safe-haven JPY and assisted USD/JPY to regain traction.
• Rebounding US bond yields revived the USD demand and remained supportive of the uptick.
• Escalating geopolitical tensions held back bulls from placing aggressive bets and capped gains.

The USD/JPY pair maintained its bid tone heading into the European session, albeit has retreated a few pips from the daily high and was last seen trading around the 113.75 region.

A combination of supporting factors assisted the USD/JPY pair to attract some buying on the first day of a new week and snap three consecutive days of the losing streak. A generally positive tone around the equity markets undermined the safe-haven Japanese yen and acted as a tailwind for the major. Bulls further took cues from a goodish rebound in the US Treasury bond yields, which helped revive the US dollar demand.

Apart from this, the greenback was further underpinned by the growing market acceptance that the Fed will tighten its monetary policy at a faster pace than anticipated. Investors seem convinced that the Fed would begin raising interest rates in March to combat high inflation and have been pricing in a total of four hikes in 2022. Hence, the focus will remain glued to the outcome of a two-day FOMC meeting starting Tuesday.

Heading into the key event risk, escalating geopolitical tensions between Russia and Ukraine capped the upside for the USD/JPY pair. In fact, the US State Department ordered the families of all American staff at the US Embassy in Ukraine to leave the country amid concerns about a possible Russian attack. Moreover, reports suggested that President Joe Biden was considering sending US troops to NATO allies in Europe along with warships and aircraft.

The mixed fundamental backdrop warrants some caution before placing aggressive bullish bets around the USD/JPY pair and confirming that the recent pullback from a multi-year high has run its course. Market participants now look forward to the flash US PMI prints (Manufacturing and Services) for a fresh impetus. This, along with the US bond yields and the broader market risk sentiment, should produce some trading opportunities around the USD/JPY pair.

Technical levels to watch